Japan steps in to weaken currency

3 August 2011 Last updated at 22:00 ET

A strong yen makes Japanese products more expensive abroad and dents demand for exports

The Japanese government has intervened in the currency markets to weaken the yen and protect economic growth.

Finance Minister Yoshihiko Noda confirmed the move to the media but declined to comment on the size of the intervention.

The dollar has moved higher against the yen on the intervention, jumping to 78.47 from 77.

The government has repeatedly warned that the strong yen is hurting growth.

The BBC’s Tokyo correspondent Roland Buerk says the government has complained that the rise of the yen has not been based on economic fundamentals.

Japan’s economic growth has been stagnating and has been put under increased pressure by the cost of rebuilding following the deadly earthquake and tsunami in March.

Other steps?

The Bank of Japan (BOJ) is due to start a two-day meeting at 1115 local time (0315 BST) in Tokyo.

It said in a statement on Thursday that it would now make a monetary policy decision later in the day.

Analysts are expecting the BOJ to unveil its own measures aimed at stimulating growth and easing currency fluctuations.

In recent months the yen has been boosted because of cautious investors moving away from the US dollar and the euro amid fears of an expanding debt crisis.

Other currencies, such as the Swiss franc, which are seen as being less risky have also gained.

The Swiss central bank cut interest rates on Wednesday in an attempt to weaken its own currency.

However, analysts have questioned how much governments such as Japan or central banks such as Switzerland’s can do on their own to weaken currencies.

“The yen’s advance reflects the difficult economic and fiscal situation of both the US and the eurozone,” said Takashi Kamiya from T&D Asset Management.

“So even if Japan intervenes in the market, it won’t be able to combat the yen’s rise in the long run on its own.”

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